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Breakfast Report - 23 March, 2020

On March 9, Brent crude oil front-month futures prices fell below $35/bbl, following the OPEC+ meeting which ended without an agreement on production levels. Last week, the executive director of the IEA Fatih Birol, in conjunction with the OPEC Secretary General Mohammed Barkindo expressed their concerns over the impact of the COVID-19 pandemic, as it is likely to reduce the income for oil and gas producing nations. Recent IEA analysis revealed that should present market conditions persist, vulnerable developing countries should expect their oil and gas revenue to plummet by 50% - 80% in 2020. At the start of the year, the IEA expected oil demand growth to come in at 1.2mbpd, however following the outbreak of the virus, it trimmed its demand growth forecast to 825kbpd. Nigeria remains particularly vulnerable to a lower crude environment, as shocks in the global oil markets will weigh on fiscal revenue generated by the government. In its 2020 budget, 44% of projected revenues is to come from oil related sources, with ₦1.22 trillion earmarked for federally funded projects in the oil and gas sector, however the downturn in crude prices has led the nation to cut its budget for 2020, halted the borrowing plans of the government and has weighed on sentiment in the equities market. Lower receipts from oil sales will likely lead to an increase in NPLs from oil miners, a rise in NPLs will weigh on the incomes of banks, further dampening investor sentiment on the sector. Furthermore, with Saudi Arabia and its allies slated to increase production from April – May, lower oil prices will increase pressure on the nation’s foreign reserves as well as the nation’s ability to generate fiscal revenues.

Equity: The local bourse recorded another negative w/w performance as overhanging uncertainties in the global and domestic spaces continue to weaken investors’ confidence. Going into this week, we expect the market to continue to react to events in the crude oil market as well as news surrounding the Coronavirus.

Stock Watch: The ASI benefited from price appreciation in mid/large cap stocks as names such as JBERGER (+628bps), MTNN (+352bps), ACCESS (+263bps), GUARANTY (+164bps) and DANGCEM (+54bps) closed Friday’s session in the green.

Fixed Income: With investors unnerved as the outbreak of COVID-19 spreads throughout the globe, coupled with the ongoing price war between Saudi Arabia and Russia, we foresee tepid trading in the fixed income space to the start of the week, as we expect market participants to remain on the sidelines barring any positive news to spur buy-side activity.